As Florida scrambles to address the issues that have led to its current property/casualty insurance crisis, another hurricane-prone coastal state, Louisiana, is navigating its own insurance woes.
The property insurance market in Louisiana has deteriorated since the state was hit by record levels of hurricane activity in the 2020-2021 season, Triple-I says in a new Issues Brief about the state’s insurance crisis. Twelve insurers offering homeowners insurance in Louisiana were declared insolvent between July 2021 and February 2023.
“While there are similarities between the situations in these two hurricane-prone states, the underlying causes of their insurance problems differ in important ways,” said Mark Friedlander, Triple-I’s director of corporate communications. “Florida’s problems stem largely from decades of litigation abuse and fraud, while Louisiana’s problems have more to do with insurers being underfunded and not having enough reinsurance to withstand claims sustained during record-breaking 2020 and 2021 hurricane seasons have arisen.”
Insurers have paid out more than $23 billion in insured losses from more than 800,000 claims filed during the two years of severe hurricane activity. The largest property damage events were Hurricane Laura (2020) and Hurricane Ida (2021). The growing claims volume also prompted a dozen insurers to voluntarily withdraw from the market and more than 50 to halt new business in hurricane-prone communities.
That’s not to say abuse of the legal system isn’t a factor in the Louisiana crisis — quite the contrary, as highlighted by Insurance Commissioner Jim Donelon’s February cease-and-desist order against a Houston-based law firm. According to Donelon, the firm filed more than 1,500 lawsuits over a three-month period last year for hurricane claims in Louisiana.
“The size and scope of McClenny, Moseley & Associates’ illegal insurance system is unlike anything I’ve seen before,” Donelon said. “It is rare for the department to issue regulatory action against companies that we do not regulate, but in this case the order is necessary to protect policyholders from the company’s fraudulent insurance activities.”
McClenny Moseley has since been suspended by federal court for the Western District of Louisiana for his work on Hurricane Laura insurance claims.
According to a joint paper published by the American Property Casualty Insurance Association (APCIA), the Reinsurance Association, Louisiana’s “onerous bad faith laws” regularly feature on the American Tort Reform Foundation’s “Judicial Hellholes” list of America (RAA) and the Association of Bermuda Insurers and Reinsurers (ABIR) over-inflated claims and premiums.
“Insurers who fail to pay claims or submit a written offer to settle within 30 days of proof of damage can face penalties of up to 50 percent of the amount due, even for purely technical violations,” the paper said. “To avoid these massive penalties, imposed on highly subjective standards of conduct, insurers are sometimes forced to pay more than the actual value of the claim as the lesser of two evils.”
As a result of these converging contributors, Louisiana Citizens Property Insurance Corp. — the state-run insurer of last resort — has grown from 35,000 to 128,000 policyholders over the past two years, according to the Louisiana Department of Insurance.
Learn more:
The Louisiana Insurance Commissioner issued a cease and desist order to the Texas law firm
Hurricanes cause insurance losses and insurer bankruptcies in Louisiana
